Sox First

© DonkeyHotey

Yesterday I did a blog entry showing how the banks had saved the Facebook IPO. Every time it looked like dipping below the $38 mark, the banks would step in and buy, sending the price up.

Today, we have reports showing how much the banks spent. MarketWatch reports that Morgan Stanley and Goldman Sachs got hold of 53 per cent of Facebook shares which they could flog. And they cleaned up too. We read that Morgan Stanley was expected to collect the largest chunk of what could be more than $175 million in fees from the social-network company's IPO.

But Nadia Damouni and Olivia Oran at Reuters say Morgan Stanley might have stuffed itself up completely doing it, and it might well have done itself an enormous amount of damage. "Morgan Stanley may have spent billions of dollars to support the stock price by buying shares in the market. Some market participants said that the underwriters had to absorb mountains of stock to defend the $38 level and keep the market from dipping below it. The firm did this by tapping into a 63 million share over-allotment option, or greenshoe, according to sources familiar with the deal. As an indication of the cost, had Morgan Stanley bought all of the shares traded around $38 in the final 20 minutes of the day, it would have spent nearly $2 billion. Underwriters are not obligated to prop up a stock on debut, but typically do".

That's right. It spend $2 billion to pick up just $175 million in fees. With the way markets are going now, it could leave Morgan Stanley with serious cash flow problems.

© karpidis

So now the economists are saying Greece should leave the Eurozone.

Dr Doom, Nouriel Roubini, the only economist who predicted the global financial crisis, says it's the only option. He says that the experience of Iceland and other emerging markets over the past 20 years show that an orderly restructuring and reduction of foreign debts can restore debt sustainability, competitiveness, and growth. He says Greece staying in the Eurozone would be disastrous. "Postponing the exit after the June election with a new government committed to a variant of the same failed policies (recessionary austerity and structural reforms) will not restore growth and competitiveness. Greece is stuck in a vicious cycle of insolvency, lost competitiveness, external deficits, and ever-deepening depression. The only way to stop it is to begin an orderly default and exit, coordinated and financed by the European Central Bank, the European Commission, and the International Monetary Fund (the "Troika"), that minimizes collateral damage to Greece and the rest of the Eurozone .. Like a doomed marriage, it is better to have rules for the inevitable divorce that make separation less costly to both sides. Make no mistake: an orderly euro exit by Greece implies significant economic pain. But watching the slow, disorderly implosion of the Greek economy and society would be much worse."

The economists at Societe Generale say it could be could be managed. "The direct costs of Greek euro exit would be huge for Greece, but manageable for the rest of the euro area. Our concern is contagion. A speedy and forceful response would be required to stem this and the good news is that an extensive toolbox is already in place."

This is why the European Commission and the European Central Bank are working on scenarios in case the country has to leave. It looks inevitable.

© dullhunk

Greece goes from one disaster to the next, jumping from the fry pan into Vesuvius. According to the latest reports, Fitch ratings agency has downgraded five Greek banks. It gave National Bank of Greece, Eurobank, Alpha, Piraeus and Agricultural Bank of Greece a CCC rating, down from B-, and noted that these banks have not yet received capital injections earmarked for them under the country's latest international bailout. So what's left of the Greek government has left them high and dry.

Reuters reports the Greeks are now saying German Chancellor Angela Merkel has raised the idea of Athens holding a referendum about its euro zone membership next month. Berlin has vehemently denied it. Reuters reports: "The confusion arose after a telephone call earlier on Friday between Merkel and Greek President Karolos Papoulias, in which Merkel conveyed her hope for a functioning government in Greece after repeat elections on June 17. Greek government spokesman Dimitris Tsiodras said after the call that Merkel also raised the idea of a referendum. '(Merkel) relayed to the President thoughts about holding a referendum in parallel with the elections on the question whether Greek citizens wish to remain in the euro zone.' A German government spokesman rejected the idea that Merkel had proposed a referendum. 'This is false and we completely dismiss this,' the spokesman said." Maybe they just needed a good translator.

Yesterday I did a blog entry looking at the likelihood of Greece exiting the Eurozone and warned that it could lead to a coup there. Add to that the warning from former Mexican central bank governor Guillermo Ortiz who says that if Greece leaves the euro zone it could detonate a global financial crisis even worse than the 2008 credit crunch, dry up global trade financing and spur another U.S. recession. We're in uncharted waters, and dangerous territory.